Buying Bitcoin and digital currency is something that’s grabbed the interest of a lot of investors. Its huge growth in 2024 has been exciting and predictions for 2025 are optimistic. But is Bitcoin really safe?
Bitcoin holds a special place in the world of digital assets. It’s built on the world’s first blockchain and was the world’s first cryptocurrency. In 2024, the value of a single Bitcoin surpassed $100,000 for the first time. People who owned Bitcoin from the beginning have seen huge returns, and even people who bought within the last ten years will have seen significant profits.
That said, Bitcoin is far more volatile than traditional stocks, bonds, and other assets. And, as you might have heard, there are other risks associated with investing in crypto in general and Bitcoin in particular.
Blockchains are designed to be secure, but you can still lose assets if you’re not careful. Hackers and thieves are always working to get around blockchain security. Fraudsters also target crypto owners with phishing schemes surrounding cryptocurrency transactions.
We’re not saying that Bitcoin isn’t safe, but we do want to make sure you’re informed about the key risks and what you can do to protect yourself and not lose money. Keep reading to learn about blockchain security, Bitcoin risks, and how to protect yourself from fraud and theft.
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How Bitcoin’s Blockchain Ensures Security
The whole idea behind Bitcoin and other cryptocurrencies is that they’re decentralized and stored on a blockchain, so let’s start by talking about what that means.
A blockchain is a decentralized ledger. It stores records, including digital assets such as cryptocurrencies, non-fungible tokens (NFTs), and smart contracts across a network of computers.
Bitcoin blockchain security involves using a consensus mechanism called Proof of Work to add blocks to the chain. Many of the newer cryptocurrencies use an alternative method called Proof of Stake. Both use cryptography to ensure security. Proof of Work is largely considered to be more secure than Proof of Stake, but it uses more energy and computing power than Proof of Stake.
The primary benefit of blockchain technology is that it makes transactions transparent and immutable, meaning that nobody can change the transaction after the fact. There are security measures built in, including:
- Private keys
- Public keys
- Digital signatures
The cryptographic algorithm used to secure the Bitcoin blockchain is called SHA-256. In 2024, there have been some concerns about how technological advances may impact the security of that blockchain.
We should also note here that cryptography ensures that Bitcoin transactions can’t be reverse engineered or altered. What it can’t do is protect digital assets that you own. That’s a separate issue and one that we’ll address in depth later in this article.
Risks That Could Impact Bitcoin’s Safety
Now that you understand how the Bitcoin blockchain works, let’s review some of the specific factors that can impact Bitcoin’s security risks and cryptocurrency transactions.
Hacking and Exchange Security
The first risk that can impact the safety of Bitcoin and digital currency that you own is hacking and the security of cryptocurrency exchanges and your crypto account. Many of the most popular exchanges, including Coinbase, have implemented state-of-the-art security that includes encryption and separate crime insurance to protect users’ assets in the event of a hack.
The most important thing for you to know as a Bitcoin investor is that any asset that’s stored online is vulnerable to a potential hack. That’s the nature of online storage. No matter what security is implemented, it’s logical to assume that someone in the world is trying to figure out a way around them. In other words, there are Bitcoin hacking risks that you should be aware of.
A case in point is what happened with Mt. Gox, which was a cryptocurrency exchange founded in 2010 and based in Japan. By the beginning of 2014, it was handling approximately 70% of all Bitcoin transactions in the world. In February of that year, the company suddenly ceased operations and filed for bankruptcy.
It turned out that the company had “lost” hundreds of thousands of Bitcoins and cryptocurrency investments. The initial reason for the loss wasn’t clear, but the eventual explanation is that these coins were stolen from Mt. Gox’s hot wallet (meaning a wallet that’s connected to the web) over time.
200,000 coins were “found” over the years. As of July of 2024, Mt. Gox has repaid approximately $3 billion of users’ assets and still owes another $5.8 billion.
The takeaway from this is that Bitcoin owners must be careful to store their Bitcoin in secure locations and not trust an unsecured platform to keep them safe.
Pro Tip:
Sign up today and get $50 of BTC for free after making your first trade on Coinbase!
Regulatory Risks
Cryptocurrency regulation is an ongoing process that varies from country to country. In the United States, President Joe Biden signed one executive order that is designed to protect consumers who own cryptocurrency. It’s important to note that executive orders aren’t the same as legislation and may be reversed through another executive order.
Reviewing cryptocurrency exchanges, there have been several significant lawsuits around regulation. For example, eToro admitted that it violated security laws. As a result, they struck an agreement with the SEC to remove all but three cryptocurrencies from their platform.
There’s some consensus that when Donald Trump re-takes office on January 20, he will work to create a favorable environment for crypto. Early signals include his appointment of pro-crypto Paul Atkins as head of the SEC, and Gail Slater to head the Antitrust Division at the Department of Justice.
User Error
One of the biggest risks associated with buying Bitcoin is user error. Some of the most common errors include:
- Using a weak password (or reusing a password from another site)
- Failing to implement two-factor authentication
- Sharing your login information with someone else
- Losing private keys
- Falling for phishing scams
A famous example is what happened in 2024, when North Korean hackers stole $1.34 billion of cryptocurrency in 47 separate incidents. Another involves an NFT owned by actor Seth Green, whose hot wallet was hacked in 2022. In the latter case, Green lost a TV deal he had signed that would feature the character depicted in the NFT.
Both of these examples illustrate how important it is to be mindful of security around Bitcoin, and why you should not store digital assets in an unsecure location.
Emerging Technology
Finally, there’s the issue of technology. Google recently announced that it has developed the Willow quantum computing chip.
The chip has the potential to break cryptographic algorithms, and that may include SHA-256, the algorithm that protects the Bitcoin blockchain. In the days since the announcement, crypto enthusiasts have expressed concern that the release of the chip could lead to major security issues and have significant impact on cryptocurrency regulation in the new year.
Is Bitcoin Safe From Fraud and Theft?
By now, you might be wondering whether Bitcoin is safe from theft and fraud. That’s an important question, so let’s get into some of the most common scams before we share some best practices that are helpful with Bitcoin fraud protection and Bitcoin theft protection.
Here are some of the most common scams and potential red flags to look out for to keep your Bitcoin safe.
Pro Tip:
Sign up today and get $50 of BTC for free after making your first trade on Coinbase!
Phishing Attacks
A phishing attack is an attack where a fraudster tries to trick the owner of an asset into giving away their username, password, and other identifying information. These attacks often focus on financial websites, including banks, credit unions, and digital brokerages.
The most common approach is to send the target a message, either via email or text, to make them believe that their information has already been stolen. There’s a link that may look legitimate but leads to a spoof website or app page. People who aren’t paying attention may enter their information and not realize their mistake until it’s too late.
A recent example involved a scammer sending public pictures of a target’s home with the threat of making compromising information and pictures public if the target didn’t pay them $2,000 worth of Bitcoin.
Red flags of a phishing scam include getting an unsolicited email with a link, being encouraged to enter passwords and other data by clicking a link, or any link that doesn’t go to the website mentioned in the email. There are a lot of variations. An example might be a link that claims to be from a .com website but has a .net or .us extension, instead.
Ponzi Schemes
Ponzi schemes have a lot in common with pyramid schemes. The primary difference is that a pyramid scheme is typically built on a product or service, while a Ponzi scheme is built on nothing but a promise of what the perpetrator will deliver.
An example of a crypto Ponzi scheme involved a Texas company called CryptoFX LLC, which targeted Latino people in the United States and two other countries. It made unrealistic promises of “risk free” crypto investing with guaranteed returns.
The most important red flag to help you avoid a crypto Ponzi scheme is when a sales pitch makes you a promise that seems too good to be true. There’s no such thing as a “sure thing” crypto investment, and anybody who promises you that is trying to rip you off.
Fake ICOs
Initial Coin Offerings or ICOs are popular events that give people the option to get in on the ground level of a new crypto coin. Fake ICOs can seem very convincing, with people entering their credit card numbers to pay for coins that they never receive.
In March of 2024, a group of scammers registered a new domain name for a coin that was said to be related to the Olympics. TheOlympicToken.com website and others with a similar goal attracted investors who were eager to get a promised 100x profit. Worst of all, they were encouraging people to trade the new coin on a legitimate exchange, something that’s important to keep in mind. Not all exchanges are careful to verify the coins listed there as legitimate.
The easiest way to avoid being caught up in a fake ICO is to visit the ICO website and look for a link to a whitepaper. Any legitimate endeavor will have a whitepaper and shouldn’t lead back to an exchange or any other website.
How to Secure Your Bitcoin: Best Practices
Now, let’s walk through some best practices to help you secure your Bitcoin and avoid falling victim to hackers and thieves.
Cold Storage vs. Hot Wallets
Bitcoin storage is an essential element of security. You should have secure storage for your Bitcoin. The most common type of storage is a crypto wallet. You’ll have to choose between a hot wallet, meaning one that’s connected to the web, and a cold wallet, which is typically a piece of hardware similar to a memory stick that’s kept in your possession and never connected to the web.
We strongly recommend cold storage for your Bitcoin and other digital assets. It’s a lot harder for a thief to get hold of a piece of hardware stored in your home than it is for them to hack into a password-protected hot wallet. A related best practice is never to share the password, key, recovery phrase, or anything else that protects your wallet with anybody else.
Two-Factor Authentication
Two-factor authentication, or 2FA for short, is something you’re already familiar with. It’s an extra layer of protection involving either a biometric scan or a texted code that you’ll need to log into your account. Most crypto exchanges have 2FA as an option, and you should enable it.
If you sign up for a code, anybody who attempts to log into your account won’t be able to do it without the texted code. If you receive a code you didn’t request, you’ll know that your password has been compromised and you’ll have the option to change it. You should always use 2FA to keep your account safe.
Phishing Awareness
We talked about phishing, and here are some best practices to help you avoid crypto phishing schemes.
- Be wary of any unsolicited email or text that includes a link asking you to provide account information.
- Hover over the link to see the URL. If a message claims to be from Coinbase, for example, look to see what the domain name of the embedded link is.
- Even if the link looks legitimate, don’t click it or provide any login information. Instead, navigate directly to the site or app the way you normally would and log in there.
- Don’t panic! The headings and wording of phishing emails are designed to frighten you. They want you to click on the link without thinking, so keep in mind that you should take a few deep breaths before you react.
Understanding how phishing scams work and how to spot them is crucial. We recommend wariness as your default setting when you open an email or text about your crypto holdings.
General Fraud Awareness
Finally, here are some general fraud awareness tips to help you avoid scams and schemes related to your Bitcoin holdings.
- Be skeptical of any offer that seems too good to be true. There’s no such thing as a guaranteed return or risk-free crypto investment, and receiving an offer that promises either should be seen as a huge red flag.
- Before choosing a crypto wallet, make sure to research it and read reviews. It can give you an overview of how well the wallet is designed and how secure it is. Trusted wallet providers are always your best bet.
- Be aware of social engineering scams, which may try to pose as customer support or tech support to trick you into giving out your information.
- Keep in mind that no legitimate company will ask you to give out your security key or recovery phrase.
- Keep your software up to date and check regularly for firmware updates on your hardware.
- Diversify your crypto storage. In other words, don’t keep all your eggs in one basket!
- Don’t save your recovery phrase on your phone or anywhere that it can be accessed remotely. Our recommendation is to write it down on a piece of paper and keep it in a safe deposit box or waterproof and fireproof lockbox.
These best practices will minimize the risk that your Bitcoin can be accessed and stolen. These things might seem like a lot of work, but they’re all worth doing.
Final Verdict: Is Bitcoin Safe to Use and Invest In?
Our final verdict is that Bitcoin can be safe to use and invest in, but it’s not immune to risks. While blockchain security is impressive, there are still risks of hacking and fraud. Changes to cryptocurrency regulations and new tech advances may impact security, too.
We suggest following the best practices we’ve included in this article to minimize the risk that your Bitcoin will be accessed or stolen. Most importantly, use a cold wallet for storage, never share your recovery phrase or password, and maintain a skeptical mindset any time you receive an unsolicited email or text about your crypto holdings.
FAQs
There are several risks involved in investing in Bitcoin. First, there’s the built-in volatility of cryptocurrency, which occurs because it’s not backed by a fiat currency (unless it’s a stablecoin) nor by the assets of a company. There are also cybersecurity risks, including hacking, phishing, Ponzi schemes, and other scams. As always, awareness and caution are your best defenses.
Yes, Bitcoin can be hacked or stolen. At present, it’s not possible for someone to reverse engineer ownership of Bitcoin thanks to Bitcoin’s algorithm, but crypto wallets may be vulnerable to hacking.
You can protect your Bitcoin from being stolen by engaging in best practices for crypto storage and security. For example, store your Bitcoin in one (or preferably several) cold wallets. Keep your recovery phrase stored offline in a secure location. Research any crypto wallet or crypto exchange you use and enable 2FA as an extra layer of security. Be wary of unsolicited emails or texts, and always do your own research.
Bitcoin uses Proof of Work protocol to add blocks to its blockchain, and that does make the blockchain more secure than those that use Proof of Stake, instead. That said, your Bitcoin is only as safe as you make it. You’ll need to choose the right crypto wallet, use strong passwords, enable 2FA, and do everything else we’ve recommended to keep your Bitcoin safe.
If you have a hot wallet that’s been hacked, the first step is to disconnect it from the internet and stay calm. Disconnection will preserve any Bitcoin that hasn’t been stolen and give you time to take the next steps. Next, report the theft to the maker of your crypto wallet, the crypto exchange, and your bank if fiat currency is involved. After that, you’ll need to change your password if that’s been compromised. If your recovery phrase is compromised, you’ll need to remove all cryptocurrency from the wallet and into a new wallet with a new recovery phrase. There’s no way to change a recovery phrase once it’s set up.
